Stocks in developed non-U.S. markets underperformed U.S. shares, but a weaker U.S. dollar versus most major currencies helped returns. The Japanese economy remained sluggish, and the government and central bank downgraded their growth expectations near the end of the quarter. European equity markets generally declined, though shares in the Netherlands and Portugal bucked the negative trend. Many markets were hurt by weakness among bank stocks amid concerns about negative interest rates; nonperforming loans, especially in Italy, and exposure to the energy sector. Stocks in emerging markets gained in the first quarter, thanks to a March rally led by Brazil, but India and China declined.
The International Discovery Fund returned −1.72% in the quarter compared with 0.64% for the S&P Global ex-U.S. Small Cap Index and −0.99% for the Lipper International Small/Mid-Cap Growth Funds Average. For the 12 months ended March 31, 2016, the fund returned 3.68% versus 0.05% for the S&P Global ex-U.S. Small Cap Index and −0.45% for the Lipper International Small/Mid-Cap Growth Funds Average. The fund's average annual total returns were 3.68%, 7.27%, and 5.89% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 1.20% as of its fiscal year ended October 31, 2015.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The International Discovery Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
Materials and industrials and business services positions weighed the most on returns in the quarter, and consumer discretionary shares were also notably weak. The portfolio's financial holdings contributed to results, thanks in large part to good performance from some real estate positions.
The start of 2016 brought with it a shift in drivers of equity prices, with materials, high yield, and commodity-oriented emerging markets leading the markets as they came back from their lows in late 2015. While this shift did not favor our positioning, we believe that our growth-focused approach will outperform in the longer term. Our overweight in China, which has been detrimental to relative performance, is a case in point. We continue to hold the view that the market is markedly undervalued and believe that the government will be able to engineer a soft landing to stabilize the economic backdrop. We noted last quarter that our triple signals (sentiment, valuations, and growth and inflation expectations) were flashing yellow but were not unfavorable enough to make us outright sellers. One quarter on, our perspective is roughly the same. With oil prices now off their lows, we believe that growth expectations have risen since the start of the year, but these could easily be punctured should supply loosen.